More Companies Should 'Rip Off The Band Aid' And Kill Weak Links

CEOs have good reason to be wary of killing off businesses that
still produce cash. Even if the business is declining, it's
hard to swallow short-term losses.

Just look at Lexmark, which Reuters
reported today is exiting the inkjet printing
business. Management saw that there was no point continuing
to invest in a business that doesn't have much of a future — even
though it accounts for 21 percent of its revenue — and stocks
rallied on the news.

Lexmark's "rip the band-aid off" approach, while
creating greater near-term revenue headwinds than a more gradual
wind down, should result in a cleaner slate sooner from which to
grow.

A research report from Brean Murray Carret & Co. says that
restructuring charges in excess of $100 million and significant
sales losses will mean lower near-term earnings. But the
move will allow Lexmark to invest in areas like software and
imaging, where it actually has room to grow.

It's accepting the sunk costs and moving on. After
all, Lexmark likely would have had to shut down this
division eventually, but by doing it early and quickly, it's
building momentum that will make it a stronger, more nimble
competitor in the future. Companies like Blockbuster
would have been smart to take this approach — or at least
some version of it.